In a move to obtain a stronger foothold in the high-tech ceramics market, the 3M Co. is acquiring Ceradyne Inc. for $860 million.
The deal marks the largest acquisition for new 3M CEO Inge Thulin, and brings Ceradyne's technology and products -- including ceramic body armor and combat helmets -- into the 3M family.
"Ceradyne is an excellent complement to our existing businesses in transportation, energy markets and defense," said Chris Holmes, executive vice president of 3M's Industrial and Transportation business.
Based in Costa Mesa, Calif., Ceradyne is a 2,200-employee firm that produces lightweight, corrosion resistant ceramics that also can withstand high temperatures. 3M's own expertise with ceramic fibers goes back 30 years with ceramics appearing in 3M's composite wires and dental products, among others.
"3M is renowned for its innovation, its (research and development) and its global reach, said Joel Moskowitz, Ceradyne's CEO. "This is a great fit and I know that advanced ceramics technologies have a tremendous future within 3M."
Founded in 1967, Ceradyne has operations in Canada, China and Germany, and is considered a leader in the development of advanced technical ceramics. The company reported net income of $83.8 million last year on revenue of $572 million.
Maplewood-based 3M is a widely diversified global manufacturer of more than 55,000 products, including backshop products like high-tech optical film and industrial goods, and highly
visible consumer and office products like Post-It Notes and Scotch Tape. The company reported net income of $4.3 billion last year on revenue of $29.6 billion.
The acquisition comes a couple of months after Ceradyne reported second quarter sales down 10 percent compared with the same quarter in 2011.
Ceradyne's gross profit margin also showed a decline compared with the 2011 quarter, dropping from 36.4 percent to 28.1 percent.
Moskowitz pointed to "short-term concerns" about the timing of a rebound in the company's solar-related businesses.
Although demand for photovoltaic solar energy increased 21 percent from 2010 to 2011, as measured by installations, "our Chinese customers continue to have excess capacity and high levels of inventory," Moskowitz said in July, when earnings were released. Also, increased solar use in China, the United States and India was "offset to some degree by reduced European demand," he said.
But the long-term outlook for solar power remains good, he said, due in part to "grid parity" that makes the technology competitive with other forms of energy -- even without the government subsidies that have helped fuel the latest boom in solar.
3M and Ceradyne have a purchase agreement based on 3M's bid of $860 million -- or $35 per share. Ceradyne's stockholders need to accept the offer, which also needs regulatory approval before it can close in the fourth quarter of this year, which is what the companies are expecting.
Shareholders appeared to greet the news enthusiastically Monday. Ceradyne's stock was up 43 percent -- or $10.49 -- at $34.92 at midday, with the stock trading at more than 80 times its normal volume; 12.6 million shares had traded hands.
3M's stock was up 1.2 percent at midday, trading at $93.55.
The acquisition also puts 3M's stockpile of cash to use. As of June 30, 3M's balance sheet listed $3.3 billion in cash and cash equivalents, and $1.6 billion in short-term investments.
Thulin, a 30-year 3M veteran, was named to the top job in February, replacing retiring George Buckley. The Ceradyne deal is 3M's first major acquisition since its $550 million bid for a division of California-based label maker Avery Dennison in January hit U.S. Justice Department opposition last month. Both Avery Dennison and 3M have said they still would like to make that merger work.
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